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What is ESG Reporting | Why It is Important for Your Business

What is ESG Reporting | Why It's Important for Your Business

What is ESG Reporting | Why It's Important for Your Business

Understanding ESG Reporting: A company's social and environmental performance is increasingly becoming a pivotal factor in shaping how potential customers perceive its brand. Consequently, businesses face escalating pressure to carefully consider the societal and environmental impact of their activities before launching new initiatives or services.

In response to this growing awareness, a cadre of third-party organizations, commonly known as Corporate Social Responsibility (CSR) monitors, has emerged. These monitors are dedicated to auditing company practices and providing guidance on enhancing their social and environmental performance.

These third-party CSR auditors typically specialize in specific sustainability areas, such as animal welfare or climate change. They only agree to monitor a company if it adheres to predetermined conditions, often involving meeting a standardized reporting benchmark for the organization's social performance. This reporting standard ensures that continuous improvement can be monitored and tracked over time.

By aligning with CSR monitors, companies not only demonstrate their commitment to responsible business practices but also gain valuable insights into areas where they can enhance their social and environmental impact. In an era where conscious consumerism is on the rise, the importance of ESG reporting cannot be overstated. It serves as a roadmap for businesses aiming to strike a balance between profitability and responsibility in an ever-evolving marketplace.

What is ESG reporting?

ESG, or ‘Environmental, Social, and Governance, reporting refers to a company’s level of compliance with key regulations in the areas of environmental protection, labor rights, and worker safety. This can also extend to include issues related to corporate governance and supply chain management. 

The term ‘reporting’ is used because ESG auditors often expect businesses to produce annual reports that go beyond regulatory compliance and, instead, examine a company’s social and environmental performance in great detail.

Why does your business need to perform ESG reporting?

Companies are increasingly being held accountable for their social and environmental impact. This is reflected in the ever-increasing number of third-party organizations that offer ESG audits. This is a positive step towards improving corporate social responsibility, but it also puts significant strain on businesses by increasing the amount of paperwork required to demonstrate continuous improvement in key areas of sustainability. 

Depending on the regulations your business is required to meet and the products or services it provides, you may also need to report on your level of compliance with specific regulations.

Types of ESG reporting

There are many different types of ESG reporting, each of which will have its own set of requirements. The most common types of ESG reporting relate to environmental issues, including energy, carbon, water and waste; and social issues relating to human rights and working conditions. 

1- Environmental reporting: Measuring and analyzing your organization’s impact on the environment is the most basic level of ESG reporting. Environmental reporting usually focuses on three key areas: 

  • Energy: How much energy is used to power your operations? 
  • Carbon: What is the total amount of CO2 emissions arising from your operations? 
  • Water and Waste: What is the total amount of water and waste produced by your operations? 

2- Social reporting: Assessing the social impact of your operations involves calculating the number of people your business employs and their working conditions. Social reporting is often the most challenging area to audit and the most closely linked to regulatory compliance. 

3- Regulatory reporting: Depending on the types of services or products your business provides, you may also be subject to specific reporting requirements. 

These are most commonly linked to the sourcing of your materials, the use of certain hazardous substances, or compliance with local labor regulations.

How to ensure your business stays compliant with ESG regulations

The best way to ensure your business remains compliant with ESG regulations is by appointing an internal team responsible for tracking and monitoring compliance. This can be done either by assigning one or two employees to the role or by hiring a third-party consulting firm to manage the process for you. 

A third-party consultant specializes in regulatory compliance and will be able to assign a dedicated project manager to your business to streamline internal processes, identify gaps in your compliance, and provide guidance on how to correct any issues that arise. 

Compliance assistance is increasingly being offered as part of a broader sustainability consulting package. It is recommended that you select a consulting firm that offers a wide range of services, including assistance with ESG reporting.

Bottom line

Integrating sustainability into your business operations is a never-ending process. This is why your company must have an effective compliance management system in place. This will allow you to track your progress against key sustainability targets, ensuring that any issues that arise are corrected promptly. 

The more effort you put into ensuring your business is compliant with ESG regulations, the less effort you will have to put into responding to negative media coverage and complaints from your customers or suppliers.